As smartphones influence the prepaid category, what’s a retailer to do?

As consumers become more astute with their smartphones, buying, sending and even redeeming gift cards may become the way they eventually handle all transactions, bypassing banks and credit-card companies altogether.

"Since 90% of consumers who have a prepaid debit card also have a checking account, the threat to financial institutions is clear,” says Lee Wetherington of Allen, Texas-based ProfitStars.

For retailers overwhelmed by the implications of this trend, the immediate concern is gift cards. While digital gift cards have been available on cross-channel retailers’ websites for years, the industry has more recently seen a marked increase in their popularity as a byproduct of the increasing ubiquity of smartphones.

“When we started offering digital [gift cards] in 2008-2009, the vast majority of people would print those cards out and redeem them in the store using that printed version,” says Mike Fletcher, general manager of digital solutions for Atlanta-based InComm. “Now, 28% of people are viewing the card from a mobile device. That’s a trend that has popped up in the last couple of years, and they’re aggressively moving to mobile redemption.”

Gift cards trending toward mobile is undoubtedly causing many brick-and-mortar merchants to quiver, considering that digital could potentially cut them out of the supply chain. “Every opportunity to bypass our stores is a threat,” says Lisa Dell’Alba, president and CEO of the 11-store Square One Markets, Bethlehem, Pa.

On the positive side, she counters, “If there is the potential to bring customers in utilizing these online tools, it could be a benefit to our business.”

Fletcher of InComm agrees. While in favor of retailers being proactive, he sees potential in at least two areas: loyalty and variety.

Take loyalty. Retailers can partner with manufacturers and other third parties to act as redemption spots for loyalty rewards. For example, customers could fill out a survey for a big-name energy drink and get a free can at the city’s most popular c-store. Such partnerships need time and forethought, but Fletcher says the electronic platforms for executing such ties exist and are only growing stronger.

For variety, the biggest opportunity is targeting the channel’s top demographic: the cash-only customer. Without growing the category’s footprint, retailers can use signage, interactive display screens and even the customer’s own cellphone to digitally offer cards beyond what’s on the rack. The person has more choices, but more important, at the register he or she has the option of paying with cash.

In both loyalty and variety, think of the smartphone as the device that lets shoppers land deals and also manage their finances. “Now you have an inexpensive way of fulfilling stored value,” Fletcher says, “and a way to redeem a reward that’s as easy as running it through a [point-of-sale].”